Life Insurance in the UK: Level Term vs Decreasing Term

Life insurance in the United Kingdom comes in two primary term formats. Level term insurance pays a fixed lump sum if you die during the policy term — the payout remains the same whether death occurs in year 1 or year 25. This is ideal for providing a specific financial safety net for dependents, typically recommended at 10-15 times your annual salary.

Decreasing term insurance has a payout that reduces over time, designed to match a repaying mortgage. If you have a £200,000 repayment mortgage over 25 years, decreasing term cover ensures the outstanding balance would be cleared regardless of when death occurs, and costs significantly less than level term because the risk to the insurer decreases each year. The UK life insurance market is dominated by Legal and General (UK's largest life insurer), Aviva, Royal London, Scottish Widows, and Zurich.

All are regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). Critical illness cover (CIC) is a popular add-on or standalone product that pays a lump sum on diagnosis of specified conditions including cancer, heart attack, and stroke. CIC is more expensive than pure term cover because it covers illness during your lifetime, not just death.

Joint life policies cover two people and pay out on the first death — these are common for couples with a mortgage. Life insurance proceeds are typically tax-free in the UK, but to avoid inheritance tax complications, it is advisable to write the policy in trust. Most UK life insurance can be purchased online or through an independent financial adviser (IFA), with premiums fixed for the entire policy term.